Kaiser's power play

When the news was released on Sunday afternoon, it could almost be construed as a Christmas story. Concerned corporation offers to sell its power back into the overtaxed Western electrical grid, taking the pressure off the system. But there was more to the story. Only two months after welcoming its workers back, Kaiser Aluminum announced it would also shut down its Mead plant until next fall due to the power situation.

As the news has had a chance to sink in, a chorus of criticism has risen up. "If you were in a drought, and I said I'd help you -- I'd sell you some water... for $100 a gallon -- would that make me a good person or a profiteer?" wondered one person familiar with the situation.

As the West's electrical markets have experienced a historic run in recent days, Kaiser's allocation of power has become more and more valuable -- much more valuable than aluminum. As of Tuesday, a megawatt hour of electricity was selling in California for $1,500; last year at this time, the price was more like $100.

So it's not surprising that Kaiser, looking out for its shareholders, would want to seize the opportunity to benefit from the market's run. But many are asking whether the company has the right, ethically or legally, to sell the public's power for private gain. After all, the Bonneville Power Administration (BPA) has given them favorable rates -- rates often a third less than what others pay -- to keep the aluminum rolling, not to become a speculator on the market. Making the situation even more ridiculous is the possibility that the BPA may have to buy the power itself from other vendors to sell to Kaiser to fulfill its contract. In other words, by today's prices, BPA may have to pay $1,000 a megawatt hour or more for power that it is bound to sell to Kaiser for $20, which would then be resold for as much as $1,500. Some estimate that Kaiser could reap half a billion dollars out of the deal by next fall.

"This is really pungent in the dollar amounts being so high," says Charlie Higley, energy research director for Public Citizen in Washington, D.C. "Reselling power by a subsidized industry is outrageous, but this is Orwellian."

But due to recent contracts, it may be completely legal for Kaiser to do just that. While the company's new contract with BPA (which runs for five years starting Oct. 1, 2001) states that any profits made from selling its electricity must be reinvested and stay in the region, its current contract (which last for another 10 months) does not contain that language. Currently, BPA is attempting to hold Kaiser to the new language, but they haven't heard yet what Kaiser's plans are.

"We are asking them what they plan to do with the profits," says Mike Hansen, a spokesperson for the BPA. "We have asked them to consider the impact on employees -- to mitigate their situation. And we have asked if they need to make improvements to the plant for efficiency or even to consider future power purchases. We're committed to do whatever it takes to make sure they're up and running for the long term."

In other words, the negotiating has begun, with BPA already appearing to be open to allowing Kaiser to use the windfall on future energy purchases, which is the same as profits if the company is committed to staying in the region. But fewer people than ever are optimistic about that.

Some see Kaiser's decision to close up and sell its power as one last hurrah before leaving Washington state and its meddling Department of Ecology and fluctuating energy prices for greener pastures -- perhaps overseas, where they have some options. If that's the case, we may see Kaiser argue the details of their contracts in court against BPA and try to keep those profits rather than reinvest them locally.

To understand the situation most clearly, you need to go back to 1980, when the Northwest Power Planning Act was passed as federal law. Critics say that law offered the Northwest's aluminum industry public subsidies of more than $250 million a year. But there was a reason for that. The aluminum industry, many argue, won World War II for the United States by allowing vast swarms of airplanes to overwhelm the opposition. Some of the support for the aluminum industry is based in the thought that it is crucial to national defense, or at least as an unspoken thank you for past performance. The price breaks also have to do with the fact that aluminum smelters are unique customers in that they use power around the clock, giving the BPA a regular buyer to count on.

But that arrangement was not good enough for the aluminum industry, and in 1996 the companies, including Kaiser, reneged on their 20-year contracts, and were subsequently allowed by the BPA to shop around for at least 25 percent of their power starting in 1996. While that made sense for a while, the decision has turned out to be short-sighted, as BPA power is much preferred over what can be bought on the open market, especially today. While the Northwest Power Planning Act was set to expire this year, leaving the aluminum industry without a subsidy, the Clinton Administration is said to have interceded (perhaps in part due to an appeal by the Steelworkers' union) to allow the basic tenets of the Northwest Power Planning Act to continue for another five years -- through 2006.

The biggest difference between the old contracts and the new ones? The old ones don't allow the companies like Kaiser to resell their power allocation; the new ones do.

So now the steelworkers, who may have saved Kaiser's subsidies, are out of jobs again, and the company that started making aluminum here in the 1930s may have found a new calling in the energy markets.

For now, the union is asking Kaiser to at least take care of those employees who survived the strike settlement. The union points out that the company could make at least $52 million on the electricity it sells during the remainder of December while payroll for that time is only $5 million. Kaiser, which could not be reached for comment, has said it will pay some employees 70 percent of their wages, but the union believes all employees should be paid 100 percent of their wages.

Higley says his organization is spreading the word about what is happening here, but he hopes some organization steps forward to challenge Kaiser's power play -- perhaps the beleaguered steelworkers. But he's not optimistic: "This is a classic case of how government and corporations conspire against the public interest," he says.

But the BPA, despite having entered into some contracts that could enable Kaiser to wriggle free and enjoy a historic windfall, seems intent on enforcing its keep-the-profits-local clause. They could even curtail future purchases if they believe Kaiser has violated the spirit of their agreement. But that's an empty threat if Kaiser plans to close down or sell its Spokane facilities. Judging from the corporate personality that was exposed during the long strike, the company's critics are not expecting a quick agreement.

"We're trying to get everybody back into the spirit of those contracts," says the BPA's Hansen, "and hopefully that will work out. But we'll have to see how Kaiser responds first."